In the fast-changing world of fashion e-commerce in India, there is a clear divide between the Davids and the Goliaths. While established names such as Myntra, Jabong, Flipkart, Snapdeal and Amazon are still chasing Indian consumers with discounts, about two dozen start-ups that have mushroomed in the past year are tapping into a billion-dollar opportunity in selling pre-owned branded and designer apparel and renting garments.

They are borrowing a page from the playbook of overseas success stories such as Poshmark and Rent the Runway in the US and Secoo in China.

The value proposition: catering to the Indian middle-class aspiration for luxury garments at about three-fourth to half the price of a new product. Rentals hover at around 8-15% of the price of a garment. The brands they carry run the gamut, including AND, Vero Moda, Zara, Mango, La Senza, Calvin Klein, Burberry, Armani and Dior.

“Our driving force is availability of brands that are not available on e-commerce websites, while their stores are far and few. The pricing is definitely a draw for the customers as most of the designer wear never goes on sale,” said Sakshi Tikiya, co-founder of Mumbai-based Stylish Play.

While pricing is a major draw for customers, the companies operating in the space often deal with irrational expectations from individuals looking to sell their used apparel.

“This is a new concept and a seller does not know on what parameters to quote a price and that is where we chip in,” said Anandita Singh, co-founder of Envoged.

Most of the companies, however, do not have the scale of operations of their deep-pocket online peers. According to various company executives, most of them ship about 60-80 orders a month, charging sellers a commission of about 20-40%. A marketplace typically hosts 100-300 products from 50-70 sellers.

Experts are sceptical about the success of such businesses.

“The Indian market is not matured for these segments because the base market has to be very large to support these businesses. if the total market is so small, the scope of used market will be further skewed,” said Harminder Sahni, managing director at advisory firm Wazir Advisors.

According to the firm, the premium women’s wear market is a Rs.9,000 crore segment, about 6% of the Rs.140,000 crore women’s apparel market.

While the marketplaces for pre-owned branded apparel are grappling with the lack of penetration of premium brands among the masses, companies such as FlyRobe are targeting fashion enthusiasts with rental services for premium brands.

Unlike the marketplaces, they buy inventory from online fashion stores at a discount or directly from the brand stores. Apparel can be rented multiple times, which helps such businesses recover the cost fast and generate incremental revenue.

Barring Elanic, a marketplace for pre-owned fashion products that recently raised an undisclosed amount from Rebright Partners, TracxnLabs and angel investor Aneesh Reddy, none of the companies has raised institutional funding. This is in sharp contrast to the US and Chinese markets, where investors have poured in ample funds in companies in these sectors.

About 12 online marketplaces in the US, including Poshmark and The RealReal, have raised about $230 million, according to data provided by Tracxn, a firm which tracks start-ups. In the rental space, at least 10 start-ups in the US including Bag Borrow or Steal and Rent the Runway have raised about $162 million.

The conventional customer acquisition norms through discounts, practised by Myntra, Jabong, Flipkart, Amazon and Snapdeal, have been disrupted by the emergence of a number of new business models. While sale of pre-owned apparel and rentals are still nascent, the online fashion sector has seen the emergence of Internet-only brands such as VoxPop and Bewakoof. A number of social commerce companies such as Lime Road, Roposo and Wooplr, which leverage on content drawn from social media to influence buying, have gained prominence recently.

“It is important to have a connect with the customers which can be done through customised content for an individual,” said Arjun Zacharia, co-founder and chief executive at Wooplr.

The rise in popularity of social commerce platforms has also prompted the likes of Myntra to rethink their strategy. The company is working on ways to provide personalized fashion content to users.

Experts said companies like Myntra and Jabong need to reinvent their interaction with customers to create a deeper engagement and consequently ensure higher return rates.

“There are a lot of sites doing well because they are contemporary and enables a high level of engagement with customers, be it through generating customised fashion content or allowing buyers to design themselves,” said Anand Ramanathan, director at KPMG Advisory Services. “The bigger companies will have to look at these smaller players as they bring is a contemporary business model.”